The Big Four Australian-owned banks - ANZ, ASB, BNZ and Westpac - have regularly featured in Watchdog articles, and on the cover, for many years (most recently in Watchdog 161, December 2022: "Tax The Banks' Windfall Profits. Squeeze Them Until The Pips Squeak", Murray Horton) CAFCA has been consistently adding its voice to the public anger at the banks' obscene profits - $10 billion in 2022.

And for years we have joined the chorus calling for an official inquiry into the banks, along the lines of the 2018/19 Australian Royal Commission of Inquiry into those same banks in their home country. It was scathing in its findings. But NZ's Labour government resisted all calls for the same exercise to take place here. Parliament's Finance and Expenditure Select Committee did hear submissions on the behaviour of NZ's banking sector, in 2018. That same year the Financial Markets Authority and Reserve Bank held a joint review of NZ's 11 biggest banks. But the Government did not undertake a full-blown Commission of Inquiry.

CAFCA reminded Labour that, when it was in Opposition in 2009, it took part in the Parliamentary Banking Inquiry with fellow Opposition parties (this was boycotted by the parties in Government and by the banks). As I wrote in Watchdog 150, April 2019 ("Time For NZ Inquiry Into Banks. As The Man Said: If Nothing To Hide, Then Nothing To Fear").

"So, come on, Labour, you've done it once, when you were in Opposition. Do it again now that you're in Government, with all the resources of the State at your disposal. Don't worry about the inevitable cries that it will adversely affect 'business confidence' or possibly even 'threaten the New Zealand way of life'. The Tory government in Aussie went ahead and had one without the sky falling (except, hopefully, onto the heads of those named - individually and corporately - as guilty). To coin a phrase much beloved by Rightwing politicians and their media mouthpieces in another context - if they've got nothing to hide, then they've got nothing to fear. Time for a New Zealand inquiry into the banks".

Self-Reflection, Anyone?

But, no, not even after Labour won an outright majority at the 2020 election. In 2022, the then Prime Minister, Jacinda Ardern, wrung her hands about the huge windfall profits that the banks were making during the ongoing cost of living crisis. She called for the banks to undertake "self-reflection". "'[Banks] are continuing to operate within the parameters and the rules that are set, but that doesn't mean necessarily it's giving them the social licence that you would expect from banks who claim to be operating as members of the community', Ardern said. 'I'm simply being frank with you around my observations around what is occurring with bank profits and the fact that, do I have a current solution from Government on that? The answer is no'".

"Self-reflection has not resulted in change to banks to date, Ardern said, 'but in this current environment where we are experiencing a significant cost of living issue for all New Zealanders, I feel a responsibility to call on all those who may have the ability to ease that pressure to consider how they may do so, and I include the banks in that'" (Stuff, 7/11/22).

The banks carried on their highly profitable way. In 2023, the BNZ announced an after-tax profit of $805 million, for the six months ending March (a 13.5% increase over the equivalent 2022 profit). ANZ posted a $1.107 billion profit for the six months ending March 2023, a 14% increase. On the other hand, Westpac's half-yearly profit was $426 million, a fall of 33%. It's worth noting that the Big Four make a profit every year, without exception. The only difference is the amount of profit.

In 2023, the Government looked again at imposing a windfall profits tax on banks to help pay for the rebuild of Hawkes Bay after Cyclone Gabrielle. But good old Treasury advised against that, saying that it could find no evidence that banks' profits were any bigger than normal. Although Treasury did admit that "normal" bank profits are actually "supernormal". Treasury said: "We have not identified clear evidence for windfall profits, on top of the sector's usual elevated level of profitability...".

"The large New Zealand banks have persistently elevated levels of profitability relative to comparator banks in other countries which may indicate enduring excess profits (i.e., ongoing supernormal profits)" (Stuff, 13/7/23, Rob Stock). Furthermore, Treasury advised against windfall profits tax on anyone.

Something had to give, the plebs had to be tossed a bone. Thus, in June 2023 - five years after calls started for an inquiry - the Government announced that the Commerce Commission will conduct a market study into competition in the retail banking sector (i.e., not including business banking). The Commission has 14 months to produce a preliminary paper, which would set the direction for the final report.

It's something but not much. It is certainly not equivalent to Australia's Royal Commission into the same banks that operate here. Long-standing critics were quick off the mark. Sam Stubbs, founder of the Simplicity Kiwisaver scheme, was one of them. "Of particular concern to Stubbs is why the New Zealand subsidiaries of Australian banks make higher profits per customer than over in Australia. 'For some time now banks in New Zealand have been making more from an average New Zealand customer than their equivalent Australian. And the four most profitable companies in New Zealand are the big banks, which is unique in the Organisation for Economic Cooperation and Development (OECD)', Stubbs said".

"The Commerce Commission might also have to probe some aspects of the politics of competition in the banking sector, including political failure to force the pace on open banking. 'Has the industry deliberately delayed its introduction to inflate profits? And why hasn't the Government passed open banking legislation similar to that already in place elsewhere in the OECD?'" (Stuff, 20/6/23, Rob Stock).

What Inquiry Is Not Looking Into

Anti-monopoly campaigner Tex Edwards (founder of 2degrees) said that every New Zealander is spending $2,000 a year on profits for the banks, which also have four times the mortgage margins of their British counterparts. He went on to say: "The threshold of the inquiry needs to be raised so it answers the question: what will it take to create more effective competition in banking?"

"The role of the Commerce Commission should be to fix broken markets, not simply inquire into them, and a market study should be a means to that end, not an end in itself" (Kaka, Bernard Hickey, 20/6/23). In that same Kaka article, Bernard Hickey wrote: "The terms of reference for the banking study have carved out substantial areas for the Commerce Commission to study and... failed to mention profits (although profitability was mentioned in the Ministerial statement)".

"In particular, the Government has decided not to look at bank 'conduct and culture', which was studied by the Financial Markets Authority and the Reserve Bank in 2018 and reported on, with few consequences for the banks, or their profits, which have risen sharply since... The language in these (Ministerial statements and press conferences), suggests few major changes are contemplated or likely to be announced before the election. (Finance Minister) Robertson said there was no significant evidence to suggest banks made huge windfall profits during covid" (ibid.).

"Independent economist Cameron Bagrie called for small business banking to be included in the Commerce Commission's competition probe. 'They securitise everybody up to their eyeballs. They price for risk, but they don't actually take a lot of risk', Bagrie said. Pricing for risk, while not actually taking much, helped explain their unbroken run of profitability, he said. 'Banks have seen some years when profits have dropped, but they've never made an annual loss going back 30 years. Tell me another sector in New Zealand that has had 100% profitability year after year, and never makes a loss', Bagrie says".

"Banks had also shifted their business model to direct a greater proportion of their loans to home loans, rather than business loans, threatening economic development, he said. 'We are not going to get a result here by selling more expensive houses to each other. The banks through their business lending practices are actually holding New Zealand back'" (Stuff, 29/6/23, Rob Stock).

So, nobody - including CAFCA - has any great expectations for this Commerce Commission market study (which follows earlier ones into supermarkets and residential building supplies). Of course, the Commission is not due to report until after the 2023 election and who knows what effect a change of Government might have on it. National, which has to be seen as doing something about the profiteering banks, has called for a "short, sharp" Parliamentary Select Committee inquiry into them.

Banks Wash Hands Of Online Theft & Fraud

Meanwhile, the list of failings by the banks grows longer. In recent years, they have unilaterally forced their customers to transfer to online banking (CAFCA was one of those forced to give up cheques. A tiny fraction of our banking, in cash, is still done in person at a bank branch. We bank with Kiwibank). This has, quite predictably, led to an upsurge in online banking fraud and theft, regularly involving tens of thousands of dollars stolen from individuals. This has become a lucrative new field for organised crime.

"It's time for urgent change and more onus on financial institutions to repay stolen money. Banks are hiding behind the buyer-beware excuse and not taking responsibility for their own failures in the under-investment of technology and commercial risk taking, which we are forced to accept. It is our banks and counterparty banks who process these fraudulent transactions. They know the real account name and authenticity of the recipient of the money. It's a surprise to most customers to find the account name you type in for an online payment is not cross-checked against the official name on the account...".

"In the UK, names have been cross-checked with online payments since mid-2020 to counter fraud.... New Zealand banks have failed to implement this and continually delay. We are now a target for international crime rings. Banks point the finger, 'it's your fault', then scurry behind the Banking Ombudsman who is obliged to apply outdated laws".

"Without forcing liability back on banks, there will be no change. The risk to customers has become unacceptably high. Systems have failed to keep pace with fraud innovation ... We need retrospective action from regulators, where account-name checking would have flagged a fraud warning. The Ombudsman should demand the power to over-ride the current Code of Practice, as a signal for banks to take action".

"Technology experts openly admit banks are not using gold-standard methods. So why are we as customers being held liable for fraudsters targeting these? Banks set risk levels based on commerciality, but the law in New Zealand isn't recognising this. Their profit levels are riding high, but responsibility slinks low, because the Banking Code of Practice is too soft" (Stuff, 10/6/23, Janine Starks).

We Need More Than A Commerce Commission Market Study

Yet another example of the banks treating their customers with contempt. Not only are we cash cows to provide the Big Four with super-profits year after year, but when we are subject to outright theft due to their lack of investment in online security, they wash their hands of us. You're on your own, suckers. But make sure you keep paying those loans and mortgages, which the banks keep ratcheting up. It will take more than a Commerce Commission market study to sort out what's wrong with banks in NZ. That should be just the start.